December 14, 2011

11 Years of Ariadne Capital * What We Have Learned * Ideas Building Upon Ideas

Ariadne Capital celebrated its 11th year anniversary on the 7th of December 2011. As I reflected on that recently, I reminded myself of how fortunate we’ve been to stand shoulder to shoulder with some great men and women who are bringing the future to us.

From the start, we were always going to be different. We stated at the beginning that the capital wasn’t the point, but the ideas and the people who drove those ideas were. I’ve worked in the technology world since September 1988, and what excites me about it is that it really is about ideas. The ideas which shape markets, and how they can be accelerated through the application of technology. Through the various “de facto standards”, “beachheads”, “go to market” strategies that I’ve been involved in in my career so far, new facts emerge – new winners and losers – it’s a fascinating race to the future.

Matt Ridley called it, “Ideas having sex”. That’s what moves the world. The connections of ideas in calculated and serendipitous ways. So a brief history of Ariadne Capital’s own engagement with ideas is probably called for on our 11th birthday:

2001 – BeTheDealer – Peer to peer gambling. We advised on a capital raise for a company based out of Israel which offered the world’s first peer to peer betting product. This was an early sign that the hub/spoke architecture of the IT industry was shifting.

2001/2 – Nanomuscle – Ariadne’s first sizable deal where we raised $15 million into a micro-motor firm in the US with offices in HongKong which had the ability to create torque in a unique fashion. We were intrigued with its applications in cars and toys.

2002 – Espotting – Pay Per Click Advertising. Ariadne was a business development advisor to this company which had the original business model that Google later adopted. It was acquired for ~$200 million in January 2004. Demonstrated that the UK can build at scale paradigm shift companies, but Espotting struggled to get the funding to enable it to become a global leader.

2003 - Skype – Free calls on the web – Howard Hartenbaum, the original angel investor in Skype through the Draper Richards fund reached out to me in September 2003 asking me to “take a look”. Ariadne did a lot of the early business development at Skype through 4 dedicated people who eventually flipped into Skype. It was amazing to see something go from underfunded to sold for $2.5 billion in less than 2 years.

2003 – Intamac – Remote Home Monitoring and Management – this one hurt. I first met the Founder and CEO through BT, who we were advising at the time. He had had the vision in 2000 from his work on the engines of airplanes while in the airforce that houses would be run like an airplane cockpit. I could see it, and I tried really hard to get this company into a leadership position. The company didn’t focus on getting consumers using it, but tried and failed to get the telco incumbents to adopt it. We learned what SpinVox later proved – that all B2B companies are ultimately B2C2B companies. I’m proud that Ariadne helped Intamac do the first partnership deal that CISCO through Linksys did with a company in the EMEA region. I’m sad that we couldn’t get it over the line. When Barry Maloney, Partner of Benchmark Capital, said to me, “we were 95% of the way there, Julie” – I had to disengage. It was just too painful.

2004 – Monitise – mobile money. Alastair LUkies, the CEO first reached out to me after a panel discussion in March 2004, and we have been advising Monitise since November 2004 on business development, acquisitions, investor strategy, go to market and marketing. They provide a solution to 250 financial institutions to help them get into the world of mobile money. Monitise sit at the heart of the mobile money ecosystem and organise the traffic flows and business model for the industry. Backed by VISA five times, operating on 4 continents, every 20 seconds someone uses a Monitise service to access their balance, transfer funds, or buy something.

2005 – Zopa – peer to peer lending – Ariadne had been advising Egg and Richard Duvall’s team when he and they broke away to set up Zopa (Zopa of Potential Agreement). Richard first put me onto Carlotta Perez, from whom a great deal of learning has been had at Ariadne Capital. Perez’s theory of disruptive technology and adoption is fundamental to understanding the world that we live in. She also spoke of free-formers – what I would later refer to as Individual Capitalists. Ariadne helped the Zopa founding team with their July 2005 round of capital, bringing in Jonathan Rowland and Tim Draper from our own network. We also helped them secure early lenders. Zopa was one of the first consumer financial services plays that Ariadne advised on. While Zopa today is not the subversive play that Duvall had originally thought up, it is well-placed to reshape the world of money. Technology in 2007/8 was becoming standardised and componentised, and companies like Zopa didn’t benefit from that as they spent a lot more than they would today to build the same thing.

2006 – SpinVox – voice to text - I first met Christina Domecq, the founder of SpinVox, at CarPhone Warehouse where we were doing some work in the summer of XX. Spinvox would go on to secure £50 million, and be sold to Nuance Technologies. What we learned from SpinVox is that all B2B companies are ultimately B2C2B companies. What Spinvox did really really right was to get circa 100,000 users through a clever CarPhone Warehouse deal and then march that user demand into the mobile carriers, securing 33 carrier deals.

2006 – Otodio – text to voice – Although Otodio didn’t work, they had the idea – opposite of SpinVox – that people would want text read out to them in cars on the way to work, on the train, etc. Otodio was trying to organise a set of actions in a multi-dependency world (a network) – getting adoption by publishers, device manufacturers, auto manufacturers. They didn’t have the market power to do this, and they and we didn’t focus on business model enough.

2006 – Independent IP – a “linked in” for music publishers. Based in Amsterdam, this management team wanted to start afresh with a way to create the vault of music where rights and income streams for the artist could be managed by a center body, Independent IP. IIP would enable transactions, and organise the business model. Traction was tough as they were dealing with Goliaths in the music industry who were interested in the new new thing, but were never going to break ranks and adopt it. They or their model will become where the music industry moves to. We learned that the entrepreneur understands the new digital network or ecosystem that the established industry is moving into before the established industry does. But we weren’t able to help them enough find their early adopter. We could see though the shape of the David/Goliath battles to come.

2006/7 – Lickerish – redesign of the world of professional photography. The founders of Lickerish had a central thesis around incentivising costs and revenue streams for all of the parties in the transaction. Put another way, the celebrity being shot will choose to take a taxi rather than a limo if the costs of the photoshoot are deducted from the net proceeds to him/her. This was ground-breaking. While ultimately not as successful as they/we would have liked, they were on to a big idea around “making it people’s interest for you to be successful” early on.

2007 - The Bizmo – We were quite captivated by The Bizmo as it was the first time that we actively focused on business model as the disruptive force. The Bizmo had an application that would “forward distribute” content, and where each party which touched the application would take a cut. While ground-breaking, the application wasn’t sufficiently good. The management team have moved on.

2008 – 1click2fame – The management team was early to understand how competitions online could drive engagement between artists and followers, and brands and users. They have morphed their proposition a number of times, but have successfully built client relationships with Tesco and Pepsi. Ariadne learned a lot through this project – primarily about how the world of TV is moving to the web, how digital applications (“digital enablers” in Ariadne speak) are transforming established companies, and ultimately how it’s “all about the data”.

2009 – SliceThePie/ Sound Out – Through Paul Brown, a former EIR at Ariadne, we were introduced to David Courtier-Dutton, the Founder and CEO of SoundOut. SoundOut has created a vault of crowd-reviewed tracks from unsigned artists. Through their deal with CBS, Tomorrow’s Hits Today, they are proving that it will be the digital enablers which transform the music industry. It wasn’t their first product (fan financing – SliceThePie) or their first go to market strategy (discussions with the Record Labels), but second product and second go to market – speaking to the radio stations who were tired of being told by the Record Labels what to play, that they got their mojo, and realised that radio stations which a great ability to break new artists could do that in the digital world too.

2011 – BeatThatQuote – Although the sale of BeatThatQuote to Google was completed on the 4th of March 2011, this was 21 months in the making. Ariadne had been advising BTQ on business development activity when they received an approach from Google that we helped to negotiate to a close. The conclusion was a 122 EBITDA multiple on exit valuation. BTQ was a financial services price comparison, but crucially was offering cashback deals where the end users data was being given an economic upside. We see that data is the next battleground, and that the digital enablers are the ones that are building this consumer data profiles which are then leveraged across the Goliath distribution bases.